Tale Of Two Boeings

Long Beach: Growth in commercial aviation unit comes as C-17 assembly plant is busy but struggling

While an important economic engine for Long Beach, Boeing has brought uncertainty as well as prosperity to the community.

Over the years, the aerospace giant employed thousands of people, contributing millions of dollars in economic activity through high-paying jobs as well as purchases from suppliers.

Today, the company's local businesses are being pulled in opposing directions. Boeing's giant C-17 aircraft plant at one end of the Long Beach Airport is struggling to stay in business as it seeks international customers to replace lost domestic orders.

At the same time, in an office building at the other end of the airport, the company is expanding its commercial aircraft operations - an unexpected boost to the area's aerospace sector.

The stakes are high for the Long Beach area. About 4,000 people work locally on the $250 million C-17 Globemaster III, a dynamic military plane designed for airlift operations.

"Boeing is our fourth largest employer," according to Tom Modica, director of government affairs for Long Beach. "It's very important to Long Beach while we still have it."

In some ways, the C-17 plant is a relative success story, having outlived other local aircraft lines including the Boeing 717, a single-aisle jet airliner that ceased production in Long Beach in 2006 after only building 156 planes. Many Southern California aerospace operations have disappeared over the years since the Cold War ended.

The 1.1 million-square-foot C-17 facility is California's last major conventional aircraft production line.

The question of how long the C-17 plant will stay open has been debated and lobbied among government officials for several years.

Starting when the first C-17 production model rolled off the assembly line in 1993, Boeing has delivered 255 of the planes, the vast majority to the Air Force.

But in the mid-2000s, when the Pentagon said it had ordered enough C-17s, Boeing and its political allies began to sound the alarm. At one point, Boeing said that the plant would close by 2009 if more orders were not secured.

It was not that the Air Force had enough C-17s, but rather it preferred to spend that money on other programs, said aerospace analyst Loren Thompson, who at the time wrote blog posts arguing that the military branch could use more cargo planes.

"The Air Force has a lot of unmet modernization needs, other aircraft like fighters and bombers," said Thompson, of the Lexington Institute think tank in Virginia. "The Air Force is run most of the time by fighter pilots, so airlift often does not get as much attention as it should."

The Air Force eventually did buy more C-17s, extending the Long Beach plant's life.

But now, even Thompson acknowledges that the Air Force has enough cargo planes.

Foreign Markets

In mid-September, Boeing will deliver the 223rd and Air Force's last C-17, thereby ending the plant's most dependable lifeline.

But the focus has already shifted to the only other lifeline, foreign orders. Also by the middle of next month, Boeing will deliver its 34th C-17 for an international customer.

Foreign deliveries started in 2001 with a plane for the United Kingdom. Other U.S. allies and friendly nations received the Globemaster III, including Australia, Canada, various European countries and more recently India, Qatar and the United Arab Emirates.

Next month, India will receive its third C-17 from an order of 10. Saudia Arabia is also considering purchasing the plane, and the emphasis on potential sales has shifted to the Middle East.

With 11 current C-17 orders, that is enough to keep the Long Beach plant running through the third quarter of next year.

"The challenge is to remain competitive in today's market and capture future orders that have long contractual cycles," said Nan Bouchard, Boeing vice president and C-17 program manager, in an email.

Bouchard said she was encouraged by "strong interest" that reflects a "growing international desire for its advanced capabilities."

Continuing the pipeline of C-17 orders is a years-long process.

For example, Boeing started talking with the Indian Air Force in 2009. The order was announced in 2011, with the first two of 10 planes delivered in June and July, Bouchard noted.

But the timing of future orders is critical since a lull in work could mean the end of the factory's operations altogether.

According to a Boeing regulatory filing in June, "should additional orders not materialize, it is reasonably possible that we will decide in 2013 to end production of the C-17 at a future date."

Boeing Chief Financial Officer Greg Smith echoed that sentiment last week at an investor conference, saying that "we'll have to make a decision sometime later this year" on the C-17 production rate, The Wall Street Journal reported. Interest from potential customers could keep the plant open at a rate of 10 planes a year, Smith said.

At the height of production the Long Beach facility was assembling 15 C-17s a year. The aerospace giant reduced the annual rate to 10 starting in 2011 as orders dwindled.

And there lies a major dilemma for the C-17. A lower production rate means a higher price for each plane. That higher price, in turn, makes it harder to win new orders, Thompson explained.

Bouchard said the aircraft plant established production targets to reduce the cost, Thompson is not so optimistic.

"The days of C-17 production are numbered," said Thompson, the aerospace analyst. "How long the line stays open depends now on whether the company can get a sufficient number of foreign sales each year. It's not enough to get two or three dozen sales stretched out over a decade because that just doesn't maintain an adequate rate to keep the suppliers and skills in place."

Keeping the Long Beach plant open would require at least a dozen orders a year, the analyst continued, since anything less would make the price per plane "prohibitively high."

Moving jobs to Long Beach

If Boeing's C-17 assembly line is in jeopardy, the company is expanding its local commercial aircraft work.

The company is moving several hundred jobs from the Puget Sound area to Long Beach to perform engineering work for commercial aircraft modifications and freighter conversions as well as service work on aircraft that are out of production.

Boeing's commercial aircraft business currently employs about 1,200 workers in Southern California, split between Long Beach, Seal Beach and Huntington Beach. That number will grow over time as jobs are shifted from Puget Sound.

In May, Boeing said it would move 300 jobs to Long Beach. In July, the company said more jobs would be moved, but did not specify how many. However, the affected jobs in Puget Sound for the second announcement numbered 375 positions.

It is possible that even more jobs will follow.

"We will continue to evaluate specific opportunities as they arise to determine what is best for our business," Boeing spokesman Bob Saling said in an email.

Thompson, the analyst, sees an opportunity for Long Beach to draw additional jobs from Boeing and other aerospace companies.

"The labor costs in the Puget Sound region have become among the highest in the United States and as a result Southern California is beginning to look like a bargain," Thompson said. "There's this vast pool of aerospace talent in the L.A. Basin. With so many companies moving to places like Colorado, there are many engineers who Boeing can hire much more cheaply."

It may be a stretch to expect growth in Boeing's local commercial aircraft business to compensate for the decline in the C-17 plant, which in its heyday supported 5,000 employees in Long Beach as well as 30,000 jobs at 650 suppliers in 44 states.

Boeing's ups-and-downs may both benefit and hurt the local economy in the coming years. However, Long Beach is ready to move forward regardless of what happens, said Modica, the city's director of government affairs.

He noted that Mercedes-Benz USA recently signed a lease to set up operations at the former Boeing 717 factory.

And if the C-17 plant finally closes, the city will respond accordingly, Modica said.

"It would be a loss to the economy and the region but hopefully we're diversifying our economy," Modica said. "We're strengthening our economy and we're planning if it ends to transition those jobs to whatever is the next step."

The information above is for general awareness only and does not necessarily reflect the views of the Office of Economic Adjustment or the Department of Defense as a whole.